Weed out post-acquisition problems with due diligence

Hospitals and other health care organizations are paying an increasingly high price for inadequate due diligence prior to an acquisition. But Katie McDermott, partner with the Philadelphia-based law firm Blank Rome, says organizations can minimize their risks by performing effective due diligence that begins with a careful examination of several key areas, including qui tam and other government investigations, corporate integrity agreements, and compliance plans.

McDermott, a former federal prosecutor, says the first thing organizations should look for is the existence of any qui tam whistle-blower suits. For organizations such as laboratories that have been the targets of national initiatives, she says there is likely a potential qui tam suit lurking somewhere that the government may or may not be able to disclose.

She recommends making a specific inquiry regarding the provider’s relationship with the government that begins with any subpoenas or contact letters but also includes any informal inquiries from the Department of Health and Human Services Office of Inspector General (OIG) or U.S. Attorneys’ offices.

McDermott says organizations also should look carefully at survey results to assess the provider’s quality of care. She notes that every survey that may result in a civil monetary penalty (CMP) is automatically referred to the U.S. Attorney’s office. "If a provider has a proposed CMP, you can be sure that it has been referred for evaluation to the U.S. Attorney’s Office," she warns.

McDermott says the next area to look at is any corporate integrity agreement (CIA) the company may be operating under. "If they are under a CIA, there is going to be significant documentation that shows how they are doing with some of these issues," she says. The acquiring entity also may wish to secure a confidentiality agreement. "You are going to want to look very carefully at the agreement and its reporting requirements, notwithstanding the desire of the provider to keep that information confidential," she says.

In addition, organizations should review annual reports to the OIG, hotline logs, and other items that provide a snapshot of the operations at the institution from a compliance perspective. According to McDermott, compliance hotline logs can offer a very effective roadmap for conducting due diligence. "Be very wary of companies that have no calls or few calls, because that is really the worst thing that can happen when you are looking at an effective compliance plan," she warns.

McDermott says organizations obviously will want to review the provider’s compliance plan and assess how effectively the provider has implemented it. But that means going beyond simply asking if it has a plan and a designated compliance officer, she cautions. "You want to test a fundamental question about the philosophy of the company regarding reimbursement, compliance and personnel," she asserts. "Those are the three arenas where you are going to find fraud and abuse issues."

For example, McDermott notes that she recently examined one provider that placed compliance plan training on-line on an intranet. "They were able to make compliance part of company operations in a very meaningful way," she says. "That was very effective and led me to believe they have a good corporate philosophy regarding compliance."

McDermott says organizations also should investigate the provider’s attitude about reimbursement. "It sounds a bit cavalier to ask about their attitude about reimbursement," she adds. "But you are going to want to get a picture of their relationship with the Medicare contractor and what sort of issues they have had over the last few years."

In addition, McDermott says organizations should try to find out if the provider has many disgruntled employees. "You want to look at the complaints filed against the company from a personnel perspective, even if they didn’t make it into a compliance review," she argues. The compliance officer may not keep a good record of complaints and issues that arise, explains McDermott. "You want to ask about some employment issues, which may be a good indicator of what is going on," she says.